The practice of “the same contract code, for transactions in the same direction, commission is only charged once” is commonly referred to as “Commission Aggregation / Combined Commission” within the securities industry. This is not a hard-and-fast regulation by the Hong Kong Exchange or regulatory bodies, but rather a business convention formed through market competition and brokers’ efforts to optimize customer experience.

Regarding HK stocks, when the same contract code is used for transactions in the same direction, only one commission is charged – does this have any historical business background?

Key Historical Turning Points: Cancellation of the Minimum Commission Rule in 2003

This is the most important background to understand this issue.

• Pre-Reform (Before April 1, 2003): The Hong Kong stock market operated under a Minimum Commission Rule. At the time, brokers were required to charge clients a commission of no less than 0.25% of the transaction value. During this period, all brokerage commissions were essentially locked at the same level, and competition primarily focused on research capabilities, client relationships, and service quality; price wars were virtually non-existent. Therefore, there was no incentive to consolidate commissions for clients.

• Post-Reform (After April 1, 2003): The Hong Kong Exchange officially abolished the Minimum Commission Rule, allowing brokers and clients to freely negotiate commission rates. This reform instantly ignited competition in the Hong Kong securities industry, particularly commission price wars.

A Product of Fierce Market Competition

Following the removal of minimum commission fees, securities firms (particularly emerging internet brokers) have adopted various innovative pricing strategies to attract customers. “Consolidated Commission” is one such highly attractive initiative.

• Attracting Active Traders: For high-frequency traders or investors who prefer to buy and sell the same stock in batches (such as to avoid large single orders impacting market prices), per-trade fees can significantly increase transaction costs. The “Consolidated Commission” policy perfectly addresses this pain point, allowing investors to flexibly establish or liquidate positions within a day without worrying about multiple commission charges.

• Reducing Customer Transaction Costs: This is the most direct objective. By consolidating calculations, customer actual commission expenses are reduced, making the broker’s platform more competitive in terms of cost.

• Enhancing Customer Experience and Loyalty: This customer-friendly policy greatly enhances the user experience, making customers feel that the broker is looking out for their interests, thereby strengthening customer loyalty and retention.

Business Logic and Brokerage Interests

Although superficially, brokerage revenue appears to be declining, from a holistic business logic perspective, it’s a win-win situation:

• Low Margin, High Volume: Reducing the effective cost of each transaction can stimulate customers to trade more frequently, thereby increasing overall trading volume. While brokers “give away” commissions on individual trades, they can compensate by increasing total transaction volume and earning other fees, such as platform usage fees and financing/margin interest.

• Market Share Acquisition: In a fiercely competitive market, particularly for new internet brokerages, low commission rates and promotional policies are the most effective means of quickly acquiring users and capturing market share.

Key Points to Note

• Not All Brokers Offer It: While “merged commission” has become mainstream, it’s still a broker’s business decision and not a mandatory regulation. Some traditional brokers or banks may still charge per trade for their securities services, so investors need to carefully review the broker’s fee schedule when choosing a broker.
• Only Applies to “Commission”: Be sure to note that the calculated merged amount only includes the “commission” charged by the broker. Any “fixed fees” collected by the government or exchanges are calculated per trade and cannot be merged. These include:
  • Stamp Duty (印花税): 0.1% (Paid by both buyer and seller, rounded up to the nearest dollar)
  • SFC Transaction Levy (交易征费): 0.0027% (Collected by the Securities and Futures Commission)
  • HKEX Trading Fee (交易费): 0.00565% (Collected by the Hong Kong Exchanges and Clearing)
  • FRC Transaction Levy (会财局交易征费): 0.00015% (Collected by the Financial Regulatory Authority)

In summary, the “merged commission” policy of Hong Kong brokers is rooted in the abolition of the Minimum Commission System in 2003. It was a significant business strategy adopted by brokers in an environment of market liberalization and intense competition – to reduce customer costs, enhance service experience, attract and retain customers – representing a microcosm of Hong Kong’s financial market transitioning from traditional to modern, from high barriers to accessibility.